Canadians Saving Billions with Tax-Free Accounts

In 2009, Canada introduced Tax-Free Savings Accounts (TFSAs), and the results have been overwhelming:

In June 2009, 3.8 million Canadians had a TFSA; today, 13 million Canadians have a TFSA.

And the amount of assets in the accounts has seen comparable growth. There were $13.4 billion in TFSA funds in 2009, $73.9 billion in 2012 and $108.9 billion in December 2013.

As of June 2014, there are $131.5 billion in TFSA assets.

Of 27.7 million adult Canadians, 47 percent have a TFSA, says Chris Edwards of the Cato Institute. Edwards explains how the accounts work and why they are so popular:

Canadians can deposit a maximum of $5,500 into their accounts each year, after taxes. However, those annual limits accumulate if an individual does not max out his contribution; if someone only deposits $2,000 in his account this year, he can deposit $9,000 next year.

Earnings are tax-free, as are withdrawals, and withdrawals can be made at any time, for any reason.

Everyone has access to the accounts; there are no income limits.

The accounts can be opened at any bank branch or online.

Edwards encourages the United States to adopt a TFSA model. The accounts are simple and easy to understand and, if Canada's experience is any example, would greatly increase savings rates in the United States.